Cloud corporations.

Many months ago, my friend Tim Hwang told me that he’d like to see an API created for corporate registrations, because that would enable all kinds of interesting things. Tim runs the semi-serious Robot Robot & Hwang, a legal startup that aspires to be a law firm run entirely in software. I’ve been chewing over this idea for the past year or so, and I’m convinced that, writ large, this could constitute a major rethinking of the Virginia State Corporation Commission. Or, really, any state’s business regulation agency, but my familiarity and interest lies with Virginia. But first I have to explain Amazon Web Services. (If you don’t need that explained, you can skip past that bit.)

Amazon Web Services

Not so long ago, if you wanted to have a web server, you needed to actually acquire a computer, or pay a website host to do so on your behalf. That might cost a couple of thousand dollars, and it took days or weeks. Then you had to set it up, which probably meant somebody installing Linux or Windows from CD-ROMs, configuring it to have the software that you needed, mounting it in a rack, and connecting it to the internet. You’d have to sign a contract with the host, agreeing to pay a certain amount of money over a year or more in exchange for them housing your server and providing it with a connection to the internet. That server required maintenance throughout its life, some of which could be done online, but occasionally somebody had to go in to reboot it or swap out a broken part. But what if your website suddenly got popular, if your planned 100 orders per day turned into 10,000 orders per day? Well, you had to place orders for new servers, install operating systems on them, mount them in more racks, and connect them to the internet. That might take a few weeks, in which time you could have missed out on hundreds of thousands of orders. And when your orders drop back to 100 per day, you’ve still got the infrastructure—and the bills—for a much more popular website.

And then, in 2006, Amazon.com launched Amazon Web Services, a revolutionary computing-on-demand service. AWS upended all of this business of requisitioning servers. AWS consists of vast warehouses of servers that, clustered together, host virtual servers—simulated computers that exist in software. To set up a web server via AWS, you need only to complete a form, select how powerful of a server that you want, agree to pay a particular hourly rate for that server (ranging from a few cents to a few dollars per hour), and it’s ready within a few minutes. Did your planned 100 orders turn into 10,000? No problem—just step up to a more powerful server, or add a few more small servers. Did your 10,000 orders go back to 100? Scale your servers back down again. Better still, AWS has a powerful API (application programming interface), so you don’t even have to even intervene—you can set your own servers to create and destroy themselves, control them all from an iPhone app, or let software on your desktop start up and shut down servers without any involvement on your part.

There are other companies providing similar cloud computing services—Rackspace, Google, and Microsoft, among others—but Amazon dominates the industry, in part because they were first, and in part because they have the most robust, mature platform. There remain many traditional website hosts, which you can pay to house your physical servers, but they’re surely just a few years away from being niche players. Amazon did it first, Amazon did it best, and Amazon is the hosting company to beat now.

Cloud Corporations

Imagine Virginia’s State Corporation Commission (SCC) using the Amazon Web Services model. Virginia Business Services, if you will. One could create a business trivially, use it for whatever its purpose is, and then shut it down again. That might span an hour, a day, or a week. Or one could start a dozen or a hundred businesses, for different amounts of time, with some businesses owned by other businesses.

Why would you do this? This is actually done already, albeit awkwardly. Famously, the Koch brothers maintain a complicated, sophisticated web of LLCs, which they create, destroy, and rename to make it difficult to track their political contributions. This probably costs them millions of dollars in attorneys’ fees alone. Doing so is perfectly legal. Why should that only be available to billionaires? Or perhaps you want to give a political contribution to a candidate, but not in your own name. Wealthy people create a quick LLC to do this. Maybe you want to host a one-off event, or print and sell a few hundred T-shirts as a one-time thing—a corporate shield would be helpful, but hardly worth the time and effort, except for the wealthy. There’s no reason why the rest of us shouldn’t be able to enjoy these same protections and abilities.

Cloud corporations would be particularly useful to law firms who specialize in managing legal entities. Right now, they spend a lot of time filing paperwork. Imagine if they could just have a desktop program, allowing them to establish a corporation in a few minutes. Instead of charging clients $1,500, they could charge $500, and make an even larger profit. Although surely Delaware would remain attractive for registering many corporations, due to their friendly tax laws, the ease of registering a corporation in Virginia would surely make it attractive for certain types of business.

So what would the SCC need to do to make this happen? Well, right now, one can register for an account on their site, complete a form on their website, pay $75 via credit card, and have a corporation formed instantly. From there on out, it costs $100/year, plus they require that an annual report be filed. Both of these things can be done via forms on their website. (Note that these dollar values are for stock corporations. There are different rates for non-stock corporations and limited liability corporations.) All of which is to say that they’ve got the infrastructure in place for purely digital transactions.

But to support to an AWS model, they’d need to make a few changes. First they’d have to expose the API behind those forms, to allow programmatic access to the SCC’s services. Then they’d have to add a few new services, such as the ability to destroy a business. And they’d need to change their pricing, so that instead of being billed annually, pricing would be based on units of weeks, days, or even hours. (That pricing could be elevated significantly over standard pricing, as a trade-off for convenience.) The SCC has some antiquated regulations that would need to be fixed, such as their requirement that a business have a physical address where its official documents are stored (“Google Docs” is not an acceptable location). Finally, to do this right, I suspect that the Virginia Department of Taxation would need to get involved, to allow automated payment of business taxes (something that Intuit has spent a great deal of money to prevent) via an API.

Next Steps

I regret that this is unlikely to happen in Virginia. The State Corporation Commission is like its own mini-government within Virginia, with its own executive, legislative, and judicial functions, and seems accountable to nobody but themselves. FOIA doesn’t even apply to them. They’re not known as a forward-thinking or responsive organization, and I’m dubious that either the legislature or the governor could persuade them or even make them do this.

But I am confident that some state will do this (I hope it won’t be Delaware) and that, eventually, all states will do this. It’s inevitable. Whoever does it first, though, will enjoy a first-mover advantage, perhaps on the scale of Amazon Web Services. I’ll enjoy watching it. Maybe I’ll even register a few corporations myself.

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9 thoughts on “Cloud corporations.”

The SCC was created to get the legislators out of the business of setting railroad rates, a great leap forward in 1901. Today it has one of the very worst websites for looking up information about registered entities, a weird F-key-based DOS-looking system, and the only ones that I dislike more are the fee-based ones. Over the years I have had rotten luck with SCC filings, they are quite thorough in making sure the paperwork is just so.

Interesting. Some of my work involves the regular creation/maintenance of holding entities (usually LLCs), and lord knows I’d love a more convenient/automated way to do that. But my first reaction to a lot of this is that you’re missing the fact that the friction is the feature, in many (most?) cases. That is, the amount of time/commitment it takes to incorporate/form an LLC/etc. discourages a lot of negative (and definitely some positive!) behavior.

Also, I’d bet the presumptions of the existing system are baked so deeply into VA laws and regs that we’d end up with a great deal of unintended consequences.

This isn’t said to discourage the idea. On the contrary, I think it’s one well worth exploring. I just suspect it’s a much bigger job than may be anticipated.

But my first reaction to a lot of this is that you’re missing the fact that the friction is the feature, in many (most?) cases. That is, the amount of time/commitment it takes to incorporate/form an LLC/etc. discourages a lot of negative (and definitely some positive!) behavior.

And if that proves to be a necessary feature, I think friction can be simulated. For instance, we might require a period after creating an account before which one can start to register businesses, or we might place a floor on the price of a corporation, so that even a very short-lived corporation still costs, say, $100. But I don’t think that we should actively fail to innovate because we worry that we might create a system that’s too efficient. :) (I know that’s not really what you’re saying.)